May 26, 2015

Study: State revenue forecasting errors growing nationwide

New Mexico Political Report recently wrote about New Mexico’s trouble with accurately predicting future state revenues. The problem, it turns out, is a common one among many states and the projections are only becoming more complex each year.

In the past 25 years, states revenue projections have become less and less accurate, according to a report released in March by the Pew Charitable Trusts and the Nelson A. Rockefeller Institute of Government.

This is largely because state revenue sources are becoming increasingly volatile. Chief among them is the corporate tax, a point that New Mexico Political Report highlighted last week.

For the entire calendar year of 2015, [the Legislative Finance Committee] now projects corporate tax revenues to come in at $268 million, nearly $38 million higher than earlier predictions from this year.

But revenue projections for corporate taxes are shaky for many reasons. For one, they rely on corporate tax payments coming in consistently every quarter. Yet in reality, corporations sometimes file quarterly taxes early. Other times, they can file taxes late.

The Pew report also notes that revenue projections are even shakier during recessions. During the Great Recession, for example, a majority of states estimated tax collections to be higher than they actually were when the money came in.

Forecasting errors can have serious consequences. Overly optimistic forecasts can prompt hurried, across-the-board spending cuts, tax increases, or borrowing when collections fall short. Alternately, forecasts that are too low can result in a one-time surplus, tempting lawmakers to cut taxes or commit to spending that is unsustainable over the long run.

The report doesn’t blame revenue forecasters. In fact, the report says, “if anything, the science of estimating tax collections has improved markedly due to advances in information technology.” The report does recommend that states conduct forecasts close to the beginning of a new budget year and constantly analyze the forecasting errors.

State Rep. Bobby Gonzales shook his head from side to side after listening to all the suggestions about how to meet a judge's order to provide more resources to New Mexico children who, in the court's view, are not receiving a good public education. "About 15 different ideas," the Democrat from Taos said following a hearing on the topic last week in the House Appropriations and Finance Committee.

Analysts told lawmakers projections show New Mexico will have $1.1 billion in “new money” to spend compared to last year. But they also urged caution on how to spend that money, given the state’s reliance on volatile oil and gas revenues and the need to replace the money legislators used money from various state programs in recent years.

Gov. Michelle Lujan Grisham launched the New Mexico Legislature's 2019 session Tuesday by calling on lawmakers to pour a half-billion dollars more into education, raise the minimum wage, pass gun control and expand the state's tax incentives for the film industry. The new Democratic governor used her first State of the State address to double down on a series of liberal priorities she made the centerpiece of her campaign, arguing New Mexico should seize what she described as an opportune moment as it sees a windfall of oil revenue -- and the ascent of new political leadership.

New Mexico’s personal wage growth continues to lag behind the country as a whole and the region. The latest numbers from the U.S. Bureau of Economic Analysis, compiled by the Pew Charitable Trusts, shows that through the 2nd quarter of 2018, New Mexico’s personal income has grown just 1.1 percent since the Great Recession.

State Rep. Bobby Gonzales shook his head from side to side after listening to all the suggestions about how to meet a judge's order to provide more resources to New Mexico children who, in the court's view, are not receiving a good public education.

Joey Peters has been a journalist for nearly a decade. Most recently, his reporting in New Mexico on closed government policies earned several accolades. Peters has also worked as a reporter in Washington DC and the Twin Cities. Contact him by phone at (505) 226-3197.